The entire gamut of operations conducted in crypto is, thus, enabled primarily by these two humble keys. The private key is the secret key known only to the user, which not only confers ownership of the asset but also enables the user to transact in any crypto network. The public key is the visible key on the ledger (which serves as a username of sorts). Every single cryptocurrency - whether a traded coin such as Bitcoin, an NFT, a utility token or a stablecoin, and whether it's worth $1 or $50,000 - is just a pair of cryptographic keys. While cryptos can be confounding to classify as securities, commodities, currency, etc, they are surprisingly uniform in their form factor. There is a simple way to tackle all these risks - building a KYC-ed crypto wallet, the India Wallet. However, India has some special tools at its disposal - Aadhaar, DigiLocker and IndiaStack. This has not yet been effectively managed by any country.
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What GoI needs is proper visibility into crypto activity, the ability to KYC (know your customer) and tackle anonymity, and the ability to have strong regulatory oversight of activity not just in crypto exchanges but the full spectrum of cryptocurrency, including DeFi and non-fungible tokens (NFTs). They traded $2.4 billion in cryptos in May 2021 and Nigeria is considered the second-largest Bitcoin market, after the US. However, Nigerians have bypassed centralised exchanges and turned to peer-to-peer trading channels. It also ordered them to close accounts of Nigerians using cryptos. In February, the Central Bank of Nigeria prohibited banks from supporting any crypto transactions. Any bans on intermediaries actually incentivise people further to switch to decentralised channels.
Due to rising decentralisation of activity, most bans can't be effectively enforced as there are no intermediaries.
The global experience with banning cryptos has proven to be ineffective. In the Indian context, broad categories of risks posed by cryptocurrencies relate to financial stability, monetary policy, capital controls, illicit activities and investor protection. According to Chainalysis, close to $1.25 billion was transacted by Indians in 2021 alone through pure DeFi channels. Substantial crypto activity in India occurs outside of centralised exchanges, such as WazirX and CoinDCX. However, these approaches fail to tackle substantial decentralised activity through decentralised finance (DeFi) - where a centralised exchange can be substituted by a set of smart contracts - or tackle monetary concerns of financial stability and capital controls paramount for India. Which is why India has to have a strong solution that can ring-fence Indian cryptocurrency activity and help GoI rein in risks.ĭifferent regulatory approaches globally have focused on the regulation of centralised exchanges or intermediaries - virtual asset service providers ( Vasps) - or by solving the issue of classification of cryptocurrencies. No global precedent tackles the spectrum of risks India faces. Several policy risks that were so far manageable with low volumes have now come to the fore. Cryptocurrency activity in India has risen exponentially since March this year.
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